Allocation of Resources, Incentives, and Free Market Economy

Vocabulary flashcards covering the allocation of resources, incentives, free market economy, and the price mechanism.

Household Objectives

Aiming to maximise satisfaction from goods and services while trying to find the best job suited to individual skills.

Opportunity Cost

The cost and benefit of the next-best alternative given up.

Firm Objectives

Aiming to achieve corporate goals, which are usually assumed to be profit maximisation.

Three Economic Questions

The three questions firms must answer: What to produce?, How to produce?, and Who to produce for?

Government Objectives

Aiming to maximise social welfare through taxation and public spending to influence resource allocation.

Free Market Economy

An economic system where resources are allocated mainly by consumers and firms, with limited government involvement; also known as capitalism.

Capitalism

Another term for a free market economy in which individuals privately own the means of production and decide how to use them within the law.

Price Mechanism

The process by which changes in demand and prices send signals to firms, giving them a profit incentive to adjust production and reallocate resources.